Which Entity should I Choose?
Entity that is a fancy word is it not. What do you mean by that Scott?
Plain and simple is the form of organization that you operate under. While I cannot
comment on what you can do in other countries, I can give you some definite explanations
for my United States readers. Here we have 4 basic forms of business organization. Sole proprietorship,
Limited Liabilty Company, Corporation, and S-Corporation.
So what makes you an expert
Well I am glad you asked. The past 35 years in my professional career have been spent as a Certified Public
Accountant. In the UK, Australia, & Canada you might call this a Chartered Accountant. That means we spent a lot
of time organizing numbers for your entities. Two major statements we create for business entities are Profit and
Loss Statement and Balance Sheets. Basically in the US, your Profit and Loss Statements measures how much Profit
and Loss you have. Big hint here as my Uncle Don used to say, anyone can go into to business to create a loss.
Too many losses over time, you will either be out of business or it is just a hobby. The Balance Sheet is the place
you measure what your Assets, Liabilities (money you owe), and Owner’s Equity (your net worth). Hint, Hint, we
want that number to be positive.
The Power of Choice
Alright Scott which entity of organization should I choose.
Glad you asked.
Sole proprietorship
The simpliest for of organization is called a Sole Proprietorship. In the US that requires no extra form of registration.
You simply put together your Profit and Loss, and pay the Tax Man. Typically these taxes are filed on a schedule C which
is an attachment to the U S 1040 Tax Return. If you are a little more sophisticated you might go the extra step and create
an LLC (Limited Liability Company) in the State you live in. My state of residence (Arizona) has its own laws just like yours
will have its own guidelines.
Corporation
The next form of organization is called a Corporation. It is a stand alone entity that is not attached to your personal return.
You not only have to have a Profit and Loss but also a Balance sheet that measures your Assets (things you own) and Liabilities
(things you owe).
S Corporation
The last entity to think about is the Sub-Chapter S Corporation. It is kind of a hybrid between a schedule C and a C-Corporation.
It is a funnel type entity that flows money to your personal tax return.
I would honestly say you progress through differnt stage in your business, you may start as a Sole Proprietor, and perhaps end up as
a C Corporation depending on the size of your entity.
My Choice
We will choose how to start out in a future post, but I just thought you should have an idea about what to do, as your business grows.
Perhaps if you are from a country other than the US you could share with us what type of entity you use to build your business.
Have you started building your business yet, I would suggest you tune into the IceBerg Effect by Dean Holland.